An ML engineer is building a model to predict house and apartment prices.

In regression problems such as house price prediction, extreme values can significantly distort model learning. In this dataset, the presence of a large mansion and an extremely small apartment represents clear outliers in the Square Meters feature. According to AWS Machine Learning best practices, outliers can disproportionately influence loss functions (such as mean squared error), leading to poor predictions for the majority of typical data points.

Removing these outliers helps the model focus on learning patterns that apply to the majority of houses and apartments, which aligns with the requirement to produce accurate predictions for typical properties. After removing outliers, applying a log transformation to the Square Meters feature further improves model performance by reducing skewness and stabilizing variance. Log transformations are commonly recommended in AWS and general ML documentation when numerical features span multiple orders of magnitude.

Option B is incorrect because normalization alone does not address the undue influence of extreme outliers. Option C and D are incorrect because one-hot encoding is intended for categorical variables, not continuous numerical features such as square meters.

Therefore, removing outliers and applying a log transformation is the most statistically sound preprocessing approach.